Blockbuster-TiVo Deal Insignificant

Blockbuster (BBI) shares are up 15% today after the company announced a deal with TiVo (TIVO) to bring Blockbuster's Internet movie downloads and rentals to TiVo set-top boxes.

Too much excitement! While it's nice that Blockbuster is able to find partners for its online video service -- we expect it'll have more announcements soon -- the TiVo deal is not going to save Blockbuster.

Why not? Because TiVo's install base just isn't that big. And as most people jump to the good-enough DVR service from their cable companies, it's shrinking. At the end of January, TiVo had 3.34 million subscribers, down from 3.95 million the year before.

And the small subset of those subscribers that have the right TiVo models (and broadband Internet hooked up to their DVRs) -- just 800,000 -- already have plenty of options for on-demand rentals and purchases, of which Blockbuster is just one.

For instance, TiVo subscribers that are also Netflix subscribers can watch some Netflix movies online for free. They have also been able to access Amazon.com (AMZN) movies -- based on the same on-demand download/rental model as Blockbuster's -- since mid-2007. And many of them also subscribe to digital cable service, which has its own, built-in on-demand movie rental service.

That's not to say that TiVo subs won't use Blockbuster -- some will. It's certainly not a bad deal. It will make existing TiVo and Blockbuster subscriptions incrementally more valuable.

But it's not going to sell many more TiVos, and it's not going to sell enough Blockbuster movies to make a big impact in the company's sales. (And it's certainly no threat to Netflix, which has more streaming partners and a different, subscription-based business model.)